Financial News

Treasury Sources Tight-Lipped On Budget

I cannot remember another Budget in recent memory which has been so little leaked ahead of the day itself.

There have been one or two measures dribbling their way on to the front pages in recent days, but far fewer than in recent years.

That means one of two things: either there is a set of measures in there so exciting that the Treasury has kept itself even more leak-proof than normal to ensure maximum impact on Budget Day itself.

Or there is simply not enough in there - the Budget this year will be a non-event.

And while the journalist in me is desperately hoping the former is true, my suspicion is it will probably be the latter.

The truth is that budgets towards the end of parliamentary terms are rarely big fiscal events: everyone is too focused on the coming election.

That is undoubtedly even more the case now that Britain has fixed-term parliaments and the election term seems to start even earlier.

It is worth recalling something Nigel Lawson wrote in his memoirs, The View From Number 11.

He wrote: "The first Budget of a new Government is the greatest opportunity a Chancellor has to introduce sweeping changes ... the next best thing is the first Budget after an election in which the Government has been renewed in office, when a Chancellor once again has the opportunity to introduce reforms which might be difficult later on, either because they are too controversial or because it takes too long for their beneficial effects to become apparent before the next election."

So although I could be wrong, I would be surprised if this Budget included major, multibillion-pound changes to the fiscal profile.

While there will be tax cuts and spending changes, the best bet is that it is broadly fiscally neutral - in other words, each spending increase is evened out by a tax rise - and vice versa.

That said, do not assume this is a non-event. The Chancellor will no doubt tell a compelling story about Britain's recovery.

He will point to stronger growth than expected this year; he will say that this means the country will not borrow as much; he will say that this means that the job to repair the public finances is getting done (although more is still left to be done).

There will be measures to mitigate many Britons' common concerns.

Something to address the cost of living crisis (and take the wind out of Ed Miliband's sails).

Something to improve the lot of middle earners who have unexpectedly found themselves paying the higher rate of tax. Something for business as well.

But the bigger issue is something that will not be obvious at first.

Indeed, you'll have to dig deep inside the Office for Budget Responsibility's (OBR) report to find it: the question of how resilient this recovery really is.

For your conception (or rather the OBR's conception) of how big the so-called output gap is what really matters.

That in turn will tell us how much of the hole in the public finances is permanent, and how much of it will disappear once the economy is back in good health.

The closer the UK gets to a full-blown recovery, the clearer it will become just how much extra work needs to be done. And we are now getting closer to recovery.

Of course, if the Chancellor takes us all by surprise and cuts VAT or the basic rate of income tax, such considerations are likely to take a back seat today.

But they nonetheless will determine just how happy or miserable we should be about the public finances in the years to come.